Greetings. And welcome to Bionano Genomics Inc. Second Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ashley Robinson of LifeSci Advisors. Thank you. Please go ahead..

Thank you, Donna, and good afternoon, everyone. Welcome to the Bionano Genomics second quarter financial results conference call. Leading the call today will be Dr. Erik Holmlin, CEO of Bionano. After the market closed today, Bionano issued a press release announcing its financial results for the second quarter 2020.

A copy of the release can be found on the Investor Relations page of the company’s website.

Before we begin, I would like to remind everyone that certain statements made during this conference call may be forward-looking, including statements about our strategic and commercialization plans, 2020 sales pipeline, anticipated benefits or improvements to the Saphyr system, and the advantages of the Saphyr system over current technologies, our expectations regarding timing and content of study results and anticipated benefits of these studies in driving adoption of the software system.

Such forward-looking statements are based upon current expectations and there can be no assurances that these results contemplated in these statements will be realized.

Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in our press release and our other reports filed with the SEC. These forward-looking statements are based on information available to Bionano today.

And the company assumes no obligation to update statements as circumstances change. An audio recording and webcast replay for today’s conference call will also be available online in the Investors section of the company’s website.

For the benefit of those who may be listening to the replay or archived webcast, this call is held and recorded on August 13, 2020. With that, I will turn the call over to Erik Holmlin.

Erik?.

Thank you, Ashley, and good afternoon, everyone. I want to thank you for joining us today for this review of our second quarter results. And after my prepared remarks we'll open the call for a Q&A session.

And I just want to say at the outset that we are really amazed and thrilled at the progress we see around the globe in connection with the adoption of Saphyr and its use for really groundbreaking work across genomics.

What we're seeing are papers published recently that are showing how Bionano can be a part of creating solutions such as potential treatments and vaccines for COVID-19, possibly even test used to manage the disease of patients with COVID-19.

And all of this progress is happening amongst incredible advances that we're making in driving Saphyr to become the potential new standard in cytogenetic analysis for oncology and genetic diseases. In the business, we are seeing an enthusiastic response to the new go-to-market strategy that we implemented earlier this year.

Our goal has been to make it easier than ever for clinicians and researchers to access Bionano data in a way that's going to enhance their understanding and utility of our Saphyr technology.

We see that we are gaining traction with significant increases in services projects, consumable sales, and rental programs and system sales that taken together really grow the installed base of Saphyr systems around the world.

We are seeing increasing interest in the academic community amongst researchers who are continuing to publish really groundbreaking research and findings that show using our system will advance their understanding of genomics.

And we are also seeing publications now that illustrate the acceptance of Saphyr by clinical researchers who are developing assays for cytogenetics, including in areas such as genetic diseases and hematology-oncology. In fact two very powerful papers were published in Nature journals this quarter.

And they highlight how Saphyr is important in cutting-edge research. One paper documented the largest study of a genetic disorder using our technology to date.

In this study researchers used Saphyr genome imaging technology to establish one of the largest and most structurally accurate data sets genome analysis for a cohort of affected children and their parents in a study of DiGeorge syndrome, which is the most common disease amongst the class of genetic diseases called microdeletion syndrome.

And I can't emphasize enough how incredibly complex this region of the human genome is. And to be able to reach the level of resolution that the researchers did in their work is really groundbreaking.

And that ability to resolve such complex regions of the human genome has implications across all areas of genome research and the clinical applications of genomics, including understanding the genome variance that drive diseases. And these results can all potentially play central roles in the development of new medicines in diagnostic tests.

The other paper that was noteworthy in nature this quarter was one that was particularly topical, and it highlights how Bionano data combined with other analysis methods can help find vaccines, treatments and diagnostic tests for COVID-19.

This work is related to how researchers use Bionano's genome imaging technology to build what we call a reference quality genome. And in this case, the application of that work was on bat species actually six different bat species.

And of course, the bat is remarkably timely and the work has been ongoing, but its implication is remarkably significant now, because it can help explain the ability that bats have to tolerate viral infections.

And it may play a role in understanding how there can be a transmission of viral disease from bat species to humans, and even potentially lead to other areas of development of new vaccines and treatments. A significant shift in our go-to-market strategy has been toward a reagent rental program.

An uptake of this model continues to increase in all geographies. And new sites, which were previously inaccessible with our instrument sale only model, are now adopting Saphyr through this reagent rental program and they are making large consumable commitment.

We have announced some of these key adoptions already with the National Health System in the U.K., Medical College of Wisconsin, University of Iowa, South Korea, Yonsei University Hospital, among several others. These are all adopting installing our Saphyr system for the digital cytogenetic applications.

Now turning to our second quarter commercial results, the revenues were $1.2 million for the quarter, which were weaker than the same period of last year of $2.2 million, but that's mainly due to the impact of COVID, which has continued to impact many states and businesses including our current and potential customers.

Nevertheless, this level of performance was consistent with our expectations going into the quarter. And so, we see that as a significant accomplishment under the circumstances. While many regions of the U.S. remain nearly shut down or operating at a significantly lower pace than normal. We have seen a significant recovery of our business in Europe.

And during this third quarter, we believe that the worst of the impact of the pandemic maybe behind us. Now the number of Saphyr systems that were shipped to customers continues to be significant. Six Saphyrs were shipped this quarter, one of which was a straight instrument sale and five were reagent rental commitments.

In the second quarter of last year, eight systems were sold. So, considering the pressure of the pandemic, especially in the second quarter where the effects were felt most dramatically, the expansion of the number of Saphyrs adopted is extremely positive.

Since the commercial launch of Saphyr in February of 2017 through the end of the second quarter of 2020, there were a total of 87 Saphyr systems that had been installed and there are 19 that were awaiting installation as of the end of the second quarter.

Now as we discussed on our first quarter call, we have added a commercial services component to our product offering. We have done so as a way to serve customers, who are either unable to operate Saphyrs already in their lab or unable to adopt a Saphyr for any reason.

In a favorable response from the market, we have seen tremendous uptake of our services program. And we spoke about this quite a bit a few weeks ago when we were on discussing the first quarter results, but so far on a year-to-date basis, we have run nearly 500 samples, 493 samples year-to-date.

And what's important about that is when we compare it to the same period last year, we had run just 212 samples. And so the response or increase in service projects and samples that we're processing really reflects an increasing awareness and acceptance of our data type and its benefits.

And we believe that offering the community this services option will increase that data in the field even more and serve as a basis of continuous education of the market as to the power of Saphyr and Bionano data. Consumables sold on a per sample basis were up 189% in the second quarter of 2020 compared to the second quarter of 2019.

In this quarter, chip sales resulted in the sale of 1421 flowcells and that's a per sample equivalent. And that's compared to just 490 flowcells sold in the same period last year.

Now our focus on driving Saphyr adoption through sales of consumables in the form of reagent rental programs and our focus on driving utilization in the growing installed base is clearly working. The consumables business is expected to be more profitable over time and it is anticipated to be the primary driver of our business.

And we believe that this large increase in data generated on Saphyr systems will yield wider and wider visibility of our capabilities and drive acceptance of our data type and its value.

So these are exciting results and we're very pleased with them and we believe that it reflects significant momentum even in a relatively tough quarter around the world. And now as for the breakdown of these revenues, the $1.2 million were comprised of $229,000 in instrument sales, $711,000 in consumable sales and $242,000 in services and other.

And the cost of revenues for the quarter was $603,000 which reflects a 49% gross margin for the second quarter of 2020. And that can be compared to a cost of sales of $1.6 million or a 28% gross margin for the same period a year ago.

Now this increase in gross margin is notable and it really reflects the shift toward the increase in consumables as part of our overall product mix and that is really by design. More consumables brings in more gross margin for the company and it brings more Bionano data into the field.

Our work in supporting COVID research has also deepened this quarter as the search for a solution to the virus continues on a global basis. Bionano's Saphyr system is capable of providing solutions that researchers are facing when a virus elicits different responses to patients who otherwise have similar risk profiles.

And we believe that analyzing the structural variation of the genome can help lead researchers and investigators to solve these challenges. And we believe the Saphyr system which is being utilized as the part of several major initiatives around the globe will lead the way in structural variation analysis.

Now something I want to mention in particular and it's something that we've announced to the field and we're very proud of and extremely excited to be a part of and that is the COVID-19 Host Genome Structural Variation Consortium which was started by Dr. Ravi Kolhe at Augusta University.

The stated mission of this consortium is to look for the structural variations in or near genes that play a role in infection as well as the genes connected to the immune response among many other factors of the host response. And the hope is to explain the variation we see in disease severity and progression. And this project is getting underway.

There have been about 30 samples run to date, but the goal is to map 1000 genomes on Saphyr systems in sites around the world. So far preliminary results have yielded some promising insights, but we all recognize there's very -- still very much to be learned and progress continues.

The consortium has been growing and includes more than 50 participating institutions and they have joined forces with the consortium in Germany at the University of Hannover. And so there's a truly global team coming together here in investigating structural variations' role in the host response to COVID-19.

In addition to that important consortium, we have a significant research project underway in China. We've talked about that recently as well and while that was the first project that we had actually set up and established.

The access and ability to process samples was something that was tightly controlled in China and we have continued to work through the logistics. But that study at GrandOmics which is a Bionano service provider in Wuhan has expanded.

It now includes another center in Shanghai and we are now processing the initial samples there and that research program continues to go at a much quicker pace than originally after it was first formed.

Now the urgency to find a solution has led to this incredible rise in testing and response globally and we feel honored to be a part of these programs, but I would also note that they are making contributions to the health of the business.

And so while many researchers and -- have seen their projects have to be put on hold as focuses on COVID-19 testing have taken over COVID-19 research especially in regard to the host response is now something that is picking up. And so, hopefully it can fill a gap that has formed there.

I want to turn the page and now begin to look at the various activities that are ongoing designed to validate Saphyr as a replacement for traditional cytogenetic and genetic disease testing. Remember, Saphyr offers the opportunity to consolidate three and even four traditional methods into a single assay running on our platform.

Those assays are karyotyping, fluorescence in situ hybridization, chromosomal microarrays and southern blot analysis. And we have seen multiple presentations at scientific conferences over the course of this whole year and it has continued even in the challenging second quarter.

Those conferences include the European Society of Human Genetics, the Cancer Genomics Consortium and others.

And those presentations that have been made including the webinars and so forth that had been out there have been demonstrating that Saphyr is 100% concordant when it's compared to its ability to find the clinically relevant structural variations that standard cytogenetic methods find.

And this concordance is so important because it gives confidence to cytogenetics laboratories who are seeking to streamline their workflows and replace those traditional methods with a much more digital approach that Saphyr offers and streamlined and faster. This concordance gives them confidence to do that.

A European consortium led by Laila El Khattabi from the Cochin Hospital in Paris, France; and Alexander Hoischen who we've spoken about in the past who is at the Radboud University Medical Center in the Netherlands published data from the first very extensive validation of Saphyr for constitutional genetic disorders and they too along with studies that have been done and published in hematology oncology.

This study was the first publication showing the 100% concordance with standard cytogenetics in constitutional genetic diseases.

And so when you think of Saphyr adoption throughout the cytogenetic community, we're now seeing the validation of hematology oncology which is the significant market and that is being extended to constitutional genetic disorders. And so, this progress is really remarkably significant.

And these papers even describe the resolution of clinical cases of long standing otherwise undiagnosed diseases. And this is really important because we all know that the standard of care of testing is fairly antiquated relatively cumbersome to practice.

And so Saphyr streamlines that, but it not only streamlines it Saphyr is better because it allows for the resolution of diseases that would not typically be picked up and diagnosed using those traditional methods. And this is happening in leukemia where we're finding novel fusion proteins.

These novel fusion events that could lead to fusion protein expression which could be druggable targets, and we're seeing this in other areas of genetic diseases as well. And so the impact of these results on our business moving forward really should not be overlooked.

Our own internal data has long convinced us that Saphyr cannot just replace, but it can improve upon the three major cytogenetic testing methods.

But these published and publicly presented results now show that we have an independent clinical validation of Saphyr and it's beginning to build this critical mass of evidence in cytogenetic communities in Europe.

And in North America where we are expecting a publication imminently following a great presentation from the Columbia team recently on their study. And so we are really witnessing what we believe to be a pretty sudden change in the perception of Saphyr as a tool for cytogenetic analysis.

What we're seeing is adoption by Saphyr and what we consider to be very, very short period of time relative to our typical sales cycle and that's just a reflection of the increase in validation and increase in exception.

The decisions are now being made based on more and more on the published results and they don't require us to run demo studies as much internally. And so this is really a reflection of that increasing acceptance of the technology. And what we're hopeful for is that translates into an ever improvement in the decrease in shortening of our sales cycle.

And so I want to mention a few other key financial metrics. For example, in the second quarter operating expenses had increased by about $550,000 to $8 million compared to $7.5 million last year.

Folks should remember that we have had fairly significant increase in sales and marketing as we have really increased our focus on driving the adoption of Saphyr as well as the support teams that are required to assist them in this growth.

And this is a relatively modest increase in expenses because it's been offset by salary reductions that we implemented temporarily starting in April of 2020 as well as a decrease in discretionary spending and other costs. As of June 30, our cash was $17.2 million.

And as noted in our save the date press release, since the end of the second quarter through August 12 we have received about $14 million in cash pursuant to warrant exercises. And so we believe that our current cash and cash equivalents are sufficient to fund the company's operations well into the first quarter of 2021.

Now if you're following our filings today you will see that we have filed a universal shelf registration statement on Form S-3 and that it includes an aftermarket sales perspective. And these filings should not be interpreted as a reflection of any imminent financing.

Rather, we believe that it's prudent and good corporate practice to have our house in order and to be in a position to raise financing when the need arises. And so in closing, I would say that we are extremely encouraged by the results that we are seeing. Q2 has been a difficult quarter around the globe in our business and in other business.

And despite those challenges our teams have been incredibly focused on driving the company forward. Our customers have been very responsive to our focus on getting the message out about Bionano and have supported us in a number of online venues to create awareness and understanding of our data type.

These events have been attended by record numbers of participants and these are all in connection to our efforts to establish Saphyr as a potential new standard in cytogenetic testing.

And we believe that this will lead to Saphyr replacing traditional genome analysis methods and ushering in really a new era of broad, accessible, reliable structural variation analysis that can create new drug targets, leading to new medicines, new diagnostic, biomarker signatures leading to new pathways for patient management as well as a complete understanding throughout nature, including such important projects like the bat genome assembly project as well as the first telomere-to-telomere assembly of the X chromosome.

And so with that, I would like to open up the call for Q&A.

Operator?.

Thank you. [Operator Instructions] Our first question is coming from Kevin DeGeeter of Oppenheimer. Please go ahead..

Hey, guys. Thanks for taking question. Erik, appreciate the really thorough update. A few things. Appreciate the disclosure with regard to flow chips. I think you said about 1200 in the quarter.

Is that still overwhelmingly research? Or are you beginning to see some pull-through from cytogenetics customers? And I suppose the related question is do you always have kind of visibility as to whether or not a customer is using this for sort of a research project versus cytogenetics at this point?.

Yeah. Yeah, we have pretty good visibility, because we're engaged in the selling process. And so, there's a pretty deep discussion as to the applications. I would underscore for everybody following along and for you that the Saphyr is for research use only and not for diagnostic purposes.

And so, labs will develop it and develop clinical diagnostic assays on it which they offer as laboratory developed tests or in accordance with whatever their regional regulatory requirements are such as throughout Europe. But, when a customer intends to develop clinical assays on the system, we're generally aware of that.

What I will tell you is that, at least half of the flow cells, and I think it was about 1,400 or so flow cells that were sold in the quarter. At least half of those are going to sites that are developing assays that they intend to apply in a clinical setting.

Many of those assay development projects and adoptions are through the reagent rental program, which is sort of predicated on a volume of chips upfront. But these caps are going towards these assay development projects..

No, that's very positive. It's good to hear. And if you were to you kind of characterize uptake for some of this -- use potentially in a clinical setting.

In Europe versus U.S., are you seeing any geographic variation in terms of uptake for applications outside of the research -- traditional research market?.

Well, we do and it would be difficult to disentangle the remarkably complex sort of macro environment that we're in right now. But the facts are that Europe is really accelerated in its adoption of Saphyr for these types of cytogenetic-oriented applications.

And one would need to disentangle whether that's a reflection only of Europe's relatively progressive state regarding an exit from pandemic shutdown versus that here in the United States? Or is it something structural about the European economic -- health economic system.

I think both of those things are playing a role here and it will take some time for it to play out. But the facts are that Europe is really doing incredibly well and showing really leadership at least in our company around adopting this cutting-edge technology..

Great. And maybe one last one for me then I'll get back in the queue. And that is the service revenue, you did see what looks like a nice sequential uptick, which I think is consistent with what some of us hoped we would see with the new commercial model. But if we think about that $240,000 give or take revenue.

Is that a base that we should think about as continuing to grow through the balance of the year? Or were there specific service contracts perhaps large more one-off contracts in 2Q that may not make that representative of a trend in service revenue?.

No. I believe that this is a reflection of what to expect overall. And within that services and other revenue, yes, I would note that there are some other things, such as revenues tied to warranty and service warranty service contract. And so -- but -- so I do believe that that's not dominated by any single event..

Great. Understand. Thanks for taking my questions. It’s actually a pretty nice quarter. Thank you..

Thank you..

[Operator Instructions] Kevin, we are coming back to you for any additional questions that you have..

Okay. I actually just had maybe one more and it's sort of largely a housekeeping item. And that's as you think about -- you've really kind of cleaned up the capital structure here. It looks like in fact converted kind of over half of the warrants that were outstanding.

With kind of a little bit more balance sheet flexibility, are there certain COVID-related spending cuts that you mentioned kind of salary reductions other items that may look to reverse here in the near term? Or should we think about the operating expense structure as reported in 2Q as being the baseline for the balance of the year..

Well, we have parsed out the salary reductions. And so that's certainly a portion of the relative benefit. Even though we were up on a year-over-year basis we might have been up more if the salary reductions were in place. So we have reversed those out.

But fairly limited travel and expense costs overall and laboratory work in headquarters is focused primarily on those services projects. We're never reducing product development, but it's not as much as we would have been doing a year ago. So some discretionary spending remains relatively down on a year-over-year basis.

So it's probably somewhere in between..

And then just lastly for me. You did mention upcoming publication from a very visible consortium that I think many folks particularly in the U.S. view -- you view as kind of thought leaders in the cytogenetic space. And then my question is sort of for the U.S. potential U.S. cytogenetics-related business.

Do you think that publication is important to drive potential customer engagement? Or is there a sense from the data that's been presented at a number of meetings actually over the last six months to 12 months that Saphyr works and that -- for cytogenetics and publication sort of validating that it works may not be as important in driving uptake or use decisions..

Well, I would say that, we are certainly buoyed, by the results that are coming from these studies and publications, in Europe. We have had for example the Columbia-led study has been presented. And we've been able to share those results. They are phenomenal results 100%, concordance in that study. And the publication is proximal.

And as you know, with publications there, they get on time lines that are fairly unpredictable. But there's no, reason for the delay other than publications are on an unpredictable time line. But the results are very positive. So we're buoyed by, the study that are in Europe.

But I will say that, because of overall differences in just the structure of approaching clinical testing workflows, studies conducted in and published out of United States-based laboratories are also going to be needed. And very important and play a significant role. And it won't be just one. There are several that are ongoing.

And one is great, but there needs to be a critical mass and so that's really something that, we're deeply focused on..

Very well, thanks for taking all my questions..

You're welcome..

Thank you. Our next question is coming from Jason McCarthy of Maxim Group. Please go ahead..

Hi, everyone. Thanks for taking my questions. It's Adheip on the line for Jason. Just looking beyond, COVID-19.

Given the fact that, tumour heterogeneity plays a substantial impediment to therapy, in many cancer indications, do you see the Saphyr platform playing more of an increasingly central role in drug research? And do you see this becoming an increasingly larger revenue stream?.

Yeah. So I believe that, our ability to see adoption by drug developing firms, such as pharmaceutical companies, biotech companies, and the partners that serve them, CROs for example, we expect that to improve.

And there have been improvements and enhancements in our product portfolio, that will help drive that including the release of solid tissue DNA isolation kit, because that can be directed to solid tumour research. So our product portfolio is rounding out there.

And when you couple that with Saphyr's remarkable ability to see the pathogenic events, even if they're present in an extremely low abundance, it means you have a very powerful system and data type to uncover novel events that may be druggable targets.

And so it is our expectation that, pharma research, initially in a basic research setting, but eventually as part of clinical trial enrolment. And other forms of patient testing will continue to be something that is a significant opportunity for us..

Great. Thanks for the additional clarity..

Thank you. This brings us to the end of our question-and-answer session. I would like to turn the floor back over to Mr. Holmlin, for closing comments..

Thank you very much, operator. I want to thank everybody, who has joined the call. And I wish you all the very best. And we're excited about, the future of Saphyr and our progress within Bionano. So thank you very much..

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines or log off the webcast, at this time. And have a wonderful day..